OREANDA-NEWS. Fitch Ratings has downgraded one tranche of AyT Hipotecario Mixto II Series PH and CH and affirmed the others. A full list of rating actions is at the end of this commentary.

The RMBS transaction is backed by Spanish mortgages originated by multiple banks, which were subsequently acquired by Banco Mare Nostrum, S. A. (BB/Stable/B); Kutxabank, S. A. (BBB/Positive/F3); Bankia, S. A. (BBB-/Stable/F3) and Caixabank, S. A. (BBB/Positive/F2).

KEY RATING DRIVERS

Sufficient Credit Enhancement (CE)

CE ranges from 72.1% (Series CH-Class CH1) to 3.8% (Series PH - Class PH2) of the collateral balance. Fitch considers this sufficiently mitigates the portfolio expected loss rate and is consistent with the affirmation of the class PH1, PH2 and CH1 notes.

AyT Mixto II PH series continues to perform better than the market, with arrears over 90 days representing just 0.6% of the collateral balance compared with 1.1% reported in March 2016 by Fitch Spain RMBS Index. The same performance indicator stands at 1% for AyT Mixto II CH series as the collateral composition is weaker, with a weighted average original loan-to-value ratio of 84% and a high geographical concentration in Andalucia, where 64% of the mortgages were originated.

High Prepayments, Low Excess Spread

As of March 2016, both series of AyT Hipotecario Mixto II reported a significant jump in prepayment rates to 24.5% (+18.5pp yoy) for the CH series and 19.4% (+13pp yoy) for the PH series. No concrete explanation has been provided by the collateral servicer, but Fitch notes that similar trends are often associated with originators' support in the form of buy backs of distressed loans out of the securitised pool. The agency will continue monitoring prepayment rates.

In AyT Mixto CH Series, the low levels of excess spread have been insufficient to clear default provisioning requirements and therefore caused drawings under the reserve fund, which now stands at 92% of its target level. In Fitch's view, a thin level of excess spread is likely to persist and consequently the balance of the reserve fund will also be materially influenced by the cure rate and recoveries on late stage and defaulted loans.

Excessive Counterparty Exposure

The junior bonds' ratings are exposed to the SPV bank account rating (Banco Santander, A-/Stable/F2), as the only source of structural CE for these tranches is the reserve fund, which is kept at the bank account, and the transaction's net excess spread is insufficient to fully mitigate the hypothetical loss of the reserve fund. We have downgraded the CH2 notes to 'A-sf' considering that the hypothetical loss of the reserve fund would cause a downgrade of more than 10 notches, and therefore we deem this counterparty exposure as excessive.

Payment Interruption Risk Mitigated

Fitch assessed the transaction's ability to keep up payments to the senior securitisation notes in a scenario of servicer disruption. Fitch considers the current and projected levels of cash reserves provide enough liquidity to pay senior expenses and interest due amounts on senior tranches during one or two quarterly payment dates under various Euribor assumptions. This liquidity protection and the multi-seller nature of the transaction should allow the transaction to implement alternative collection arrangements if needed.

RATING SENSITIVITIES

The ratings remain vulnerable to the country's economic environment. If the Spanish economic recovery continues and the transaction maintains its performance, an upgrade of the mezzanine ratings is a possibility. On the other hand, if the performance of the collateral weakens beyond the agency's stress scenario analysis, downgrades are possible.

The most senior tranches are capped at the maximum achievable rating for Spanish structured finance transactions of 'AA+sf', six notches above the sovereign rating. Therefore, these ratings are sensitive to any movement of the Spanish sovereign rating.

Because the ratings of junior tranches CH2 and PH2 are exposed to the account bank rating, any movement of the counterparty rating could influence a similar movement on the tranches' ratings. In particular, a downgrade of the account bank could trigger a downgrade of these tranches if other forms of enhancement such as excess spread do not sufficiently compensate the hypothetical loss of the reserve fund.

Further depletion of the cash reserve in AyT Hipotecario Mixto II series CH may offset the CE build up caused by the notes' sequential amortisation and lead to negative rating action on the junior CH2 tranche.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Missing loan by loan information related to borrowers' income, employment status and number of months in arrears was reflected in the analysis by using aggregate level data and by taking higher foreclosure frequency assumptions. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall and together with the assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis.

- Loan-by-loan data provided by Haya Titulizacion as at 13 June 2016.

- Transaction reporting provided by Haya Titulizacion as at 21 March 2016.